In a wide-ranging interview, Kevin Murphy talks about rational addiction, the value of longevity gains, and gives us a glimpse of some future work he and Gary Becker might eventually deliver: thinking about trends in fertility in advanced countries.
Lowest-low fertility, like the total fertility rate of around 1.3 births per woman in Japan, is something that demographers have tried to understand for quite some time. The demographic transition experienced by developing countries with high fertility is much better understood.
Tuesday, June 30, 2009
Sunday, June 28, 2009
R&D Grants: Balancing risk and return
Today's paper includes an article about grant money in cancer research and other research areas funded by the National Institutes of Health. It focuses on the process of awarding grant money, which is done based on the result of peer review of applications, in a process similar to that found in academic publication.
I'd bet that while every scientist you might talk to would agree that the system has flaws, they would probably also agree that it's difficult to imagine what a better system would look like. Highly innovative research is likely to also be risky, and peer review is bound to have a hard time with such proposals. On top of that, the NIH is charged with coming up with the "best" way of spending federal tax revenues, not exactly an uncontroversial activity. Politically speaking, private foundations can afford to take much bigger risks, even if from a functional point of view one might argue that the risk tolerance of the nation as a whole ought to be at least as great as across any subgroup.
I'd bet that while every scientist you might talk to would agree that the system has flaws, they would probably also agree that it's difficult to imagine what a better system would look like. Highly innovative research is likely to also be risky, and peer review is bound to have a hard time with such proposals. On top of that, the NIH is charged with coming up with the "best" way of spending federal tax revenues, not exactly an uncontroversial activity. Politically speaking, private foundations can afford to take much bigger risks, even if from a functional point of view one might argue that the risk tolerance of the nation as a whole ought to be at least as great as across any subgroup.
Friday, June 26, 2009
The economics of textbooks
Our union president at CUNY emailed us to inquire about our opinions regarding the latest efforts in the Senate to lower the cost of textbooks for college students, this time by providing grants to faculty who write them. At issue would be the copyright; if you write a textbook paid for the public, should it become a public good? This issue was discussed last fall in an article in the Times.
And now I can't stop thinking about the economics of the textbook market. There's an interesting NBER paper recently on the demand side of the market that finds students are quite rational and forward-looking when it comes to purchasing decisions. They'll make educated guesses about publishers' new editions and buy only those textbooks that are likely to hold much of their value. This certainly fits my own perceptions of the extremely economical students at Queens College. They even dealt in second-hand course readers!
An interesting issue in the textbook market --- on the supply side --- is the incentive for creating a quality product. I think these parameters are debatable, but one could argue that key qualities in a textbook are:
that it has been updated relatively recently to reflect the current state of knowledge
that it is easy for the instructor to adopt; perhaps it is an updated version of a textbook already in use!
that it is paired with an online course homework system
(The last is probably the most discipline-specific. At teaching colleges in economics, online homework grading such as provided for specific textbooks by Aplia is becoming an absolute necessity due to class sizes and the lack of graduate student course assistants.)
The problem is that writing or updating a textbook is very costly to an academic in terms of lost time. But by and large, the academic marketplace does not reward professors for writing textbooks in the form of career advancement or prestige; instead, they're rewarded for publishing scientific articles (or books). This is where textbook publishers come in. They're intermediaries that polish up the product, mark up its price, and compensate professors for writing and updating textbooks.
It is surely no coincidence that two of the professors committed to open-source textbooks in the Times article are already full professors at prestigious universities. Although that's arguably exactly who you want to write textbooks --- established members of the field --- my point is that they don't have to worry as much about the opportunity cost of writing and updating textbooks that bring scant returns in other senses.
Another issue laid clear in that article is the large difference between fast-moving sciences in technology and relatively slow-moving sciences like history and economics, where textbook obsolescence is less of a huge issue. In the case of the former, forces seem to favor open-source publishing, maybe because it can respond so much quicker. But maybe also because there's more money in the industry!
And now I can't stop thinking about the economics of the textbook market. There's an interesting NBER paper recently on the demand side of the market that finds students are quite rational and forward-looking when it comes to purchasing decisions. They'll make educated guesses about publishers' new editions and buy only those textbooks that are likely to hold much of their value. This certainly fits my own perceptions of the extremely economical students at Queens College. They even dealt in second-hand course readers!
An interesting issue in the textbook market --- on the supply side --- is the incentive for creating a quality product. I think these parameters are debatable, but one could argue that key qualities in a textbook are:
(The last is probably the most discipline-specific. At teaching colleges in economics, online homework grading such as provided for specific textbooks by Aplia is becoming an absolute necessity due to class sizes and the lack of graduate student course assistants.)
The problem is that writing or updating a textbook is very costly to an academic in terms of lost time. But by and large, the academic marketplace does not reward professors for writing textbooks in the form of career advancement or prestige; instead, they're rewarded for publishing scientific articles (or books). This is where textbook publishers come in. They're intermediaries that polish up the product, mark up its price, and compensate professors for writing and updating textbooks.
It is surely no coincidence that two of the professors committed to open-source textbooks in the Times article are already full professors at prestigious universities. Although that's arguably exactly who you want to write textbooks --- established members of the field --- my point is that they don't have to worry as much about the opportunity cost of writing and updating textbooks that bring scant returns in other senses.
Another issue laid clear in that article is the large difference between fast-moving sciences in technology and relatively slow-moving sciences like history and economics, where textbook obsolescence is less of a huge issue. In the case of the former, forces seem to favor open-source publishing, maybe because it can respond so much quicker. But maybe also because there's more money in the industry!
Saturday, June 20, 2009
Portfolio choice and aging in a down economy
Today's Times includes an article about investment strategies for folks nearing retirement now that the stock market has been down for several years. My favorite quote is from one of the investment advisors, who says, “One of my rules is don’t do something. Just stand there.” This is the often-heard 'buy and hold' advice based on stocks' good performance in the long run.
Another theme permeating the article is reductions in risk-taking through age, and the advisors phrase it in terms either of increasing aversion to risk or mean reversion in stock returns. But theoretically speaking, if you have Social Security and you're spending down your financial assets, you should actually go riskier as you age, because you can never "cash out" of Social Security, and it's basically risk-free in the short to medium run.
But do investment advisors see an increasingly select type of client through age? In other words, if you're comfortable with your investments, you won't get advice. If you're worried, you will. Can this help explain traditional investment advice about portfolio choice?
Another theme permeating the article is reductions in risk-taking through age, and the advisors phrase it in terms either of increasing aversion to risk or mean reversion in stock returns. But theoretically speaking, if you have Social Security and you're spending down your financial assets, you should actually go riskier as you age, because you can never "cash out" of Social Security, and it's basically risk-free in the short to medium run.
But do investment advisors see an increasingly select type of client through age? In other words, if you're comfortable with your investments, you won't get advice. If you're worried, you will. Can this help explain traditional investment advice about portfolio choice?
Thursday, June 18, 2009
Freedom, democracy, and Coke
One of my favorite and most memorable New Yorker reads is a book review of A History of the World in 6 Glasses. It's not just Coke that has caffeine and gets us to socialize, of course, and it's not just caffeine that does it. Ben Franklin famously said that wine is the proof of divine adoration, but I'd put in a vote for the coffee bean and tea leaf too.
Another favorite of mine is the one on Dogfish Brewing, a somewhat less philosophical read but at least as entertaining. It opens with a recounting of how all kinds of mammals seem to love alcohol, as evidenced by rampaging drunk (beer thieving) elephants. The quote at the very end by Patrick McGovern at Penn about alcohol's unique effects on mammalian brains, namely to stimulate at first, is particularly interesting.
Had we all remained hunter/gatherers and were there no Neolithic Revolution, no agriculture, and no brewing of caffeinated or alcoholic beverages, would we ever have come up with as many great ideas? Or as many stupid ones?
Another favorite of mine is the one on Dogfish Brewing, a somewhat less philosophical read but at least as entertaining. It opens with a recounting of how all kinds of mammals seem to love alcohol, as evidenced by rampaging drunk (beer thieving) elephants. The quote at the very end by Patrick McGovern at Penn about alcohol's unique effects on mammalian brains, namely to stimulate at first, is particularly interesting.
Had we all remained hunter/gatherers and were there no Neolithic Revolution, no agriculture, and no brewing of caffeinated or alcoholic beverages, would we ever have come up with as many great ideas? Or as many stupid ones?
Credit (crunch) where credit is due
I just wish the ode to Ben Bernanke appearing in this (bi)week's New York Magazine hadn't been penned by Jim Cramer, he of the Daily Show shame. But otherwise I'd have to agree with the assessment of Bernanke's adroit stewardship. From an economist's perspective, what is really striking is the de facto complete reversal in central banking from opacity to transparency over the past decade or two.
Nobody has a monopoly on anti-immigrant sentiment
According to a Times article today, some native Oregonians express the same disdain for Californian immigrants, and the same concerns about those mostly white immigrants taking jobs and causing traffic congestion that one often hears from groups opposed to international immigration. While anti-immigration sentiments could be driven at least in part by racism, this indicates how people can "improvise" when that isn't an issue!
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